Revealed: Your pot of gold’s ‘sell-by’ date, after which it'll be trash

A break above $2,000/oz is looming but gold is forecast to fall to $1,178/oz by 2018

By

Vicky Kapur

PublishedMonday, February 27, 2012

Spot gold prices are set to move higher this year and the next, with the yellow metal expected to break the $2,000 per ounce barrier by the end of this year, or early next year.

Standard Chartered analyst Dan Smith sees gold price “rallying to record highs to average $1,975/oz in Q4-2012, breaking above $2,000/oz at some point in the year ahead.”

With prices currently hovering around the $1,770 per ounce-mark, this would imply that gold is set to appreciate another 11.5 per cent or so by the end of the year, over and above the 13.4 per cent rally the precious metal has already seen in the first two months of the year.

With gold beginning 2012 at $1,550, it is all set to record growth of about a quarter (24 per cent-plus) in its price in the year 2012 if it ends at $1,975/oz, as reckoned by Standard Chartered.

Additionally, according to most analysts, gold prices are set to breach the magical $2,000-mark sooner than later.

So, is a gold supercycle – the rally is now in its 12th year – going to extend another few years?

The answer is surprising, at least for some. The straight answer to that question is: No.

While the rally is currently strong and is expected to hold on until 2014, when prices are expected to average $2,107/oz (Standard Chartered forecast), they will ease a little after that (2015: 1,900/oz) but come crashing down after that.

By 2018, Standard Chartered expects an ounce of gold to fetch just $1,178 (estimates revised upwards from earlier $1,017 forecast). “After 2015 higher [US interest] rates will be bearish for gold and will help to push prices lower,” says Smith.

“Another trigger for lower prices could be the disappearance of the “fear factor”, which has helped push people into gold rather than other financial assets. A settling down of the European debt crisis could take some of the steam out of the surge by investors and there are some early signs that the worst may be over,” he adds.

“Once interest rates normalise and confidence in the wider financial system returns, gold will come under selling pressure and investor inflows could easily reverse. Also we expect an acceleration in mine supply due to an extended period of high prices and margins. This should mean that gold prices will revert back towards the costs of production, which is what we show in our forecast,” he says.

In fact, Standard Chartered has just revised its long-term gold price forecast from $1,017/oz to $1,178/oz (for the year 2018), from $1,046/oz to $1,212/oz (2019) and from $1,078 to $1,248/oz (2020) primarily due to a predicted rise in the cost of gold production, from current $740/oz to $953/oz by 2020.

So, while now may be the time to buy into the yellow metal, it may be prudent to sell your gold investments – coins, bars, ETFs, etc. – by the time the calendar turns to 2014.